It is not really news, but worth mentioning as it is literally happening simultaneously: As the most developed antitrust enforcement jurisdiction in Africa, South Africa, charges ahead with heavy-handed actions, such as denying alleged currency manipulators “access to file” in the investigative process, or accusing two livestock-feed processors of colluding in the sales and pricing of animal feed ‘peel pulp’, the East African nations lag behind.

What is news, however, is that they have begun to recognise the shortcoming and the adverse effects of collusion and other anti-competitive conduct on their economies: Andreas Stargard, an antitrust lawyer with Primerio Ltd., notes that the head of the East African Community (EAC), Mr. Liberat Mfumukeko, recently addressed ongoing antitrust violations in the EAC: “The Secretary denounced anti-competitive practices (cartels and the like) as serious obstacles to obtaining foreign direct investment in the region. Moreover, he recognised the violations as ‘impeding effective competition’ and thereby directly hurting African consumers,” says Stargard.

Mr Mfumukeko is quoted as stating: “The EAC markets pose challenges to investors and consumers including the charging of high prices arising from anti-competitive practices such as cartels. These practices impede effective competition in the markets.”

Within the EAC, Stargard notes, the primary jurisdictions with operational antitrust regimes are Kenya and Tanzania, with others such as Uganda lagging behind even farther, having no competition legislation or only having draft bills under review. Most other nations lag behind, although, as Mr. Stargard observes, many are part of the broader COMESA competition regime. “The COMESA rules, however, have thus far been enforced with a primary objective of merger regulation,” he says, “effectively failing to police any collusive conduct in the close to two dozen member states at all, despite the explicit prohibition thereof in the COMESA regulations.”

Since our June 2017 Edition of the African WRAP, we highlight below the key competition law related topics, cases, regulatory developments and political sentiment across the continent which has taken place across the continent in the past three months. Developments in the following jurisdictions are particularly noteworthy: Botswana, Kenya, Mauritius, Namibia, Tanzania and South Africa.

[AAT is indebted to the continuous support of its regular contributors and the assistance of Primerio’s directors in sharing their insights and expertise on various African antitrust matters. To contact a Primerio representative, please visit Primerio’s website]

Botswana: Proposed Legislative Amendments

Introduction of Criminal Liability

The amendments to the Competition Act will also introduce criminal liability for officers or directors of a company who causes the firm to engage in cartel conduct. The maximum sanctions include a fine capped at P100 000 (approx. US$10 000) and/or a maximum five year prison sentence.

Fines for Prior Implementation

Once finalised, the legislative amendments will also introduce a maximum administrative penalty of up to 10% of the merging parties’ turnover for implementing a merger in contravention of the Act. This would include ‘gun-jumping’ or non-compliance with any conditions imposed on the merger approval.

Restructuring of the Authorities

Proposed legislative amendments to the Botswana Competition Act will likely result in the Competition Commission’s responsibilities being broadened to include the enforcement of consumer protection laws in addition to antitrust conduct.

Furthermore, there is a significant restructuring of the competition agencies on the cards in an effort to ensure that the Competition Authority – which will become the Competition and Consumer Authority (CCA) – is independently governed from the Competition Commission. Currently, the Competition Commission governs the CA but the CA is also the adjudicative body in cases referred to the Commission by the CA.

The proposed amendments, therefore, seek to introduce a Consumer and Competition Tribunal to fulfil the adjudicative functions while an independent Consumer and Competition Board will take over the governance responsibilities of the ‘to be formed’ CCA.

SouthAfrica

Information Exchange Guidelines

The Competition Commission has published draft Guidelines on Information Exchanges (Guidelines). The Guidelines provide some indication as to the nature, scope and frequency of information exchanges which the Commission generally views as problematic. The principles set out in the Guidelines are largely based, however, on case precedent and international best practice.

The fact that the Commission has sought to publish formal guidelines for information exchanges affirms the importance of ensuring that competitors who attend industry association meetings or similar forums must be acutely aware of the limitations to information exchanges to ensure that they do not fall foul of the per se cartel conduct prohibitions of the Competition Act.

Market Inquiry into Data Costs

The Competition Commission has formally initiated a market inquiry into the data services sector. This inquiry will run parallel with the Independent Communications Authority of South Africa’s market inquiry into the telecommunications sector more broadly.

Although the terms of reference are relatively broad, the Competition Commission’s inquiry will cover all parties in the value chain in respect of any form of data services (both fixed line and mobile). In particular, the objectives of the inquiry include, inter alia, an assessment of the competition at each of the supply chain levels, with respect to:

The strategic behaviour of by large fixed and mobile incumbents;

Current arrangements for sharing of network infrastructure; and

Access to infrastructure.

There are also a number of additional objectives such as benchmarking the standard and pricing of data services in South Africa against other countries and assessing the adequacy of the regulatory environment in South Africa.

Mauritius

Amnesty re Resale Price Maintenance

The Competition Commission of Mauritius (CCM) has, for a limited period of four months only, granted amnesty to firms who have engaged in Resale Price Maintenance. The amnesty expires on 7 October 2017. Parties who take advantage of the amnesty will receive immunity from the imposition of a 10% administrative penalty for engaging in RPM in contravention of the Mauritius Competition Act.

The amnesty policy followed shortly after the CCM concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

Please see AAT’s featured article here for further information on Resale Price Maintenance under Mauritian law

Tanzania

Merger and Acquisition Threshold Notification

The Fair Competition Commission has published revised merger thresholds for the determination of mandatorily notifiable thresholds. The amendments, which were brought into effect by the Fair Competition (Threshold for notification of Merger) (Amendment) Order published on 2 June 2017, increases the threshold for notification of a merger in Tanzania from TZS 800 000 000 (approx.. US$ 355 000) to TZS 3 500 000 000 (approx.. US$ 15 600 000) calculated on the combined ‘world-wide’ turnover or asset value of the merging parties.

Kenya

Concurrent Jurisdiction in the Telecommunications Sector

In June 2017, Kenya’s High Court struck down legislative amendments which regulated the concurrent jurisdiction between the Kenya Communications Authority and the Competition Authority Kenya in respect of anti-competitive conduct in the telecommunications sector.

In terms of the Miscellaneous Amendments Act 2015, the Communications Authority was obliged to consult with the Competition Authority and the relevant government Minister in relation to any alleged anti-competitive conduct within the telecommunications sector, prior to imposing a sanction on a market player for engaging in such anti-competitive conduct.

The High Court, however, ruled that the Communications Authority is independent and that in terms of the powers bestowed on the Communications Authority by way of the Kenya Communications Act, the Communications Authority may independently make determinations against market participants regarding antic-competitive conduct, particularly in relation to complex matters such as alleged abuse of dominance cases.

Establishment of a Competition Tribunal

The Kenyan Competition Tribunal has now been established and the chairperson and three members were sworn in early June. The Tribunal will become the adjudicative body in relation to decisions and/or taken by the Competition Authority of Kenya.

The Operational Rules of the Tribunal have not yet been published but are expected to be gazetted soon.

Introduction of a Corporate Leniency Policy

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines, which provide immunity to whistle-blowers from both criminal and administrative liability. The Guidelines specifically extend leniency to the firm’s directors and employees as well as the firm itself.

Only the “first through the door” may qualify for immunity in respect of criminal liability, but second or third responds would be eligible for a 50% and 30% reduction of the administrative penalty respectively, provided that provide the CAK with new material evidence.

It should be noted, however, that receiving immunity from criminal prosecution is subject to obtaining consent from the Director of Public Prosecution as well. As per the procedure set out in the Policy Guidelines, the Director pf Public Prosecutions will only be consulted once a leniency applicant has already disclosed its involvement in the cartel and provided the CAK with sufficient evidence to prosecute the other respondents.

It is not clear what powers the Director of Public Prosecutions would have, particular in relation to the evidence which has been provided by the leniency applicant, should either the CAK or the Director refuse to grant immunity from criminal prosecution.

Namibia

Medical aid schemes

In a landmark judgment, the Namibian Supreme Court overturned the High Court’s decision in favour of the Namibian Association of Medical Aid Funds (NAMAF) and Medical Aid Funds (the respondents) finding that the respondents did not fall within the definition of an “undertaking” for the purpose of the Namibian Competition.

Despite the substantial similarities between the Namibian and the South African Competition Act, Namibia’s highest court took a very different interpretative stance to its South African counter-part and held that because the respondents did not “operate for gain or reward” they could not be prosecuted for allegedly having engaged in collusive behaviour in relation to their ‘tariff setting’ activities in terms of which the respondents collectively determined and published recommended bench-marking tariffs for reimbursement to patients in respect of their medical costs.

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines (Guidelines) as published in the Government Gazette in May 2017. This follows amendments to the Kenyan Competition Ac which now caters for the imposition of a maximum administrative penalty of 10% of a respondent’s turnover if found to have engaged in cartel conduct.

Unlike its South African counter-part, the CAK has sought to provide immunity to whistle-blowers who are “first through the door” from both criminal and administrative liability. A key proviso in respect of obtaining immunity from criminal liability, however, is that the Director of Public Prosecution must concur with the CAK.

The South African Competition Commission’s Corporate Leniency Policy only offers immunity in respect of administrative penalties. Accordingly, directors who caused or knowingly acquiesced in cartel conduct may be criminally prosecuted under South Africa’s leniency policy despite being the whistle-blower.

It should be noted that the CAK will only engage the Director of Public Prosecution when granting conditional immunity. At this stage of the leniency application, the applicant would already have had to disclose its involvement in the cartel conduct and provide the CAK with substantial evidence of the relevant conduct sufficient to establish a contravention of the Competition Act.

Accordingly, the Guidelines do not cater for the possibility that the Director of Public Prosecution may not be willing to forego criminal prosecution in respect of the leniency applicant. It is, therefore, not clear whether the evidence which was disclosed to the CAK as part of a leniency application may be used against the applicant should the Director of Public Prosecution not grant immunity in respect of criminal liability.

In this regard, it would have been useful if the Guidelines catered for this risk. For instance, by expressly affirming that the Director of Public Prosecution would abide by the CAK’s recommendations unless there are compelling reasons not to. Absent this assurance, potential leniency applicants may be reluctant to approach the CAK for leniency until there is, at the very least, a clear indication of the Director of Public Prosecutions involvement in this process.

A welcome feature of the CAK’s Guidelines, however, is that fact that the Guidelines specifically extend leniency to a firm as well as to the firm’s directors and employees. The inherent conflict which may arise between the interests of the company versus the interests of the relevant directors, therefore, has been removed.

A further significant aspect of the Guidelines is that the Guidelines do not limit the granting of leniency (in respect of administrative penalties) to the respondent who is ‘first through the door’ only. A second or third respondent would also be eligible for a reduction of the administrative penalty of 50% and 30% respectively, provided the CAK is provided with material “new evidence”. Only a respondent who is ‘first through the door’, however, will qualify for immunity in respect of criminal liability – provided the respondent is not the “instigator” of the cartel.

The Guidelines also provide a framework which sets out the process which must be followed in applying for leniency including the steps which must be taken in respect of ‘marker’ applications.

As to who may apply for leniency, it is noteworthy that while a parent company is entitled to apply for leniency on behalf of its subsidiary, the reverse is not true on the basis that a subsidiary does not control the parent company. Accordingly, in fully fledged joint ventures for example, only one of the parties to the JV may apply for leniency (to the extent that the JV contravenes the Competition Act) and, therefore, the parent company should be the entity applying for leniency and not the legal entity which is in fact the party to the JV.

[Michael-James Currie is a competition law practitioner practicing in South Africa as well as the broader African region]

Like this:

On 27 January 2017, the Competition Authority of Kenya (CAK) exercised its powers in terms of section 18 (1) (a) of the Competition Act, 2010, to conduct a market inquiry into the branded retail sector.

The notice, as published in the Government Gazette and signed by CAK Director General Wang’ombe Kariuki stated that “the main objective of the study is to assess the state of competition in the market for branded retail by examining the multilayered structure of the market and the conduct of market players. The market inquiry will explore the dimensions and the intensity of competition between branded retailers and how these impact on price, quality and range of offerings to the Kenyan consumer.”

The CAK is the third African competition agency to conduct a market inquiry into the retail sector following inquiries in Botswana and South Africa. The COMESA Competition Commission has also announced that it intends to conduct a market inquiry into the retail food sector, although to date the CCC has not formally initiated such an inquiry.

Unsurprisingly, the focus of the CAK’s inquiry is strikingly similar to the grocery retail market inquiry currently under way in South Africa, with both authorities focusing their attention on large retailers who allegedly engage in practices which distorts competition in the market. In particular, the CAK will focus on the following issues:

the allocation of shelf space and the relative bargaining power between retailers and their suppliers;

the nature of and the extent of exclusive agreements at one stop shop destinations and their effects on competition;

the pricing strategies retailers employ especially in regards to responding to new entrants;

whether there are any strategic barriers to entry created by incumbent firms to limit entry in the market; and

the effect of the supermarkets branded products on competition.

The issues listed above are largely common focus areas in market inquiries conducted not only in Africa but also in a number of European countries including France, Germany, Italy, Turkey and the United Kingdom,

Interestingly, the CAK’s market inquiry goes broader than purely competition issues but also has an element of “consumer protection”. For instance, one of the practices which allegedly is a common feature in the industry is what is termed “dual pricing” – where Retailers display lower product prices on the shelf but which are higher at the till.

The CAK will also investigate the rate of recurrence of the sale of defective stock by retailers to consumers and how subsequent complaints by consumers are dealt with by retailers. The CAK intends to establish the proportion of retailers that have fully operational retail return policies and to what extent they are adhered to in an attempt to evaluate whether consumers are adequately protected.

Unlike the South African Competition Act, the Kenya Competition Act also contains specific consumer protection provisions which caters for unfair trade practices and transactions that affect consumer rights such as under-cutting and over-pricing of goods and services as well as the use of misleading information to sell goods and services. This is in addition to Kenya’s self-standing Consumer Protection Act which is governed by the Kenya Consumers Protection Advisory Committee (CPAC).

The CPAC is tasked with, inter alia, facilitating the “co-ordination and networking of consumer activities and the development of linkages with consumer organizations and the competent authorities and agencies locally and outside Kenya for the protection of consumer interests”. The CPAC is, therefore, responsible for monitoring and reviewing the trading and business practices relating to the supply of goods and services to consumers, and to activities related or ancillary thereto.

It remains to be seen to what extent the CPAC is actively involved in the CAK’s market inquiry, particularly in relation to the consumer protection provisions

Focusing our attention back to the competition law implications of the market inquiry, industry players across the retails chain should be particularly cognisant of the recent amendments to the Kenya Competition Act which introduced the concept of “abuse of buyer power”. Africanantitrust previously published an article by Michael-James Currie and Ruth Mosoti who noted that “it is not technically a requirement that a firm be ‘dominant’ in order to be considered to have “buying power”.

Furthermore, the introduction of the “abuse of buyer power” provisions was largely as a result of complaints received by the CAK in the retail sector, particularly by suppliers. In addition, the CAK may well have learnt from market inquiries conducted in other jurisdictions that absent any ‘dominance’ by retailers, there is a limited prospect of successfully prosecuting firms for engaging in practices which ay distort competition in the market. In this regard, Currie and Mosoti stated further that:

“the Kenyan Competition Authority may have thought to pre-empt this challenge and, therefore, included the “abuse of dominance” provisions without requiring a firm to actually be dominant for the provision to be triggered. Furthermore, the definition of “buying power” and the absence of any requirement that the conduct must in fact be anti-competitive may have been an attempt by the legislator to lower the threshold in an effort to assist a complainant in cases where a purchaser, such as a large retailer, exerts “buyer power”, but is not “dominant” in the market.”

Accordingly, in light of the broad scope of the CAK’s market inquiry coupled with the introduction of the ‘abuse of buyer power’ provisions, it is advisable for all players in the Kenyan retail sector to actively consider their business operations, not only from a competition perspective but also from a consumer protection perspective.

The Amendment Bill was assented to by the President in December 2016 and the amendments are, therefore, effective.

Although most of the amendments which are particularly noteworthy were addressed in the above article, a particularly noteworthy amendment, and very much the focus of this article, is the newly introduced prohibition of an abuse of “buyer power”. In this regard, Section 24 of the Act, which deals with abuse of dominance generally, has been amended to also cater for an abuse of “buyer power.”

Section 24 of the Act was, even prior to the introduction of “buyer power” a particularly challenging provision to interpret and it has not been clear how the provisions relating to an abuse of dominance would ultimately be assessed.

By way of background, the definition of “dominance” in the Act, effectively states that a firm will be considered dominant if that firm has greater than 50% market share

The Act goes on to list, without being exhaustive, a number of practices which would typically constitute an abuse of dominance including:

The Act does not provide further guidance as to what would precisely constitute an “abuse” of dominance and under what circumstances a purchasing or selling price would be deemed to be “unfair”.

The abuse of dominance provisions do not necessarily, therefore, appear to be directly linked to the promotion or maintenance of competition in the market. Once it is shown that a firm has more than 50% market share, firms are in treacherous terrain as the threshold for engaging in “abuse” of dominance is relatively low when compared to many other comparable jurisdictions which generally cater for a rule of reason defence or at least provide greater guidance as to what conduct would constitute a per se violation.

By way of an example, in terms of the South Africa Competition Act, a dominant firm is per se prohibited from charging an “excessive price”. The South African Competition Act does, however, define an “excessive price” as one which “bears no reasonable relation to the economic value thereof”. Despite this definition, further guidance has been sought but the competition authorities as to what, in turn, constitutes a “reasonable” and “economic value.”

Over and above certain identified acts of abuse of dominance, the South African Competition Act also includes for a “catch-all” abuse of dominance provision. However, the conduct will only amount to an “abuse” if there is an anti-competitive effect which cannot be justified by a rule of reason analysis.

The comparison with the South African Competition Act is useful as the Kenyan Competition Act does not provide for a similar assessment as does its South African counter-part. For instance, it is not clear how predatory pricing or excessive pricing would be evaluated under the Kenyan Act. Presumably this would fall under the preclusion of charging an “unfair” selling price, which leads one back to the question as to what constitutes an “unfair” price.

In addition to the above, the recent addition of “buyer power” to the abuse of dominance provisions has added to the complexity and risk to firms on the procurement side.

“Buyer power” is defined as the “the influence exerted by an undertaking in the position or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose long term opportunity costs including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings.”

Furthermore, in considering whether a firm has “buyer power” the following factors will be considered:

the nature of the contractual terms;

the payment requested for access infrastructure; and

the price paid to suppliers.

Accordingly, the crux of the rather cumbersome definition is that an undertaking will only be considered to have “buying power” if that undertaking(s) has simultaneously actually abused its’ buying power. In other words, there is no distinction between what constitutes “buying power” and what constitutes an “abuse” of buying power. The Act’s definition of “buying power” is, therefore, all encompassing.

Although the above definition is somewhat unclear, it should be noted that the Competition Authority of Kenya, together with Parliament and other stakeholders intend developing rules which would hopefully clarify how these provisions will ultimately be evaluated.

A further important point to note is that it is not a requirement that a firm be ‘dominant’ in order to be considered to have “buying power”. Whether it was the intention of the legislator to require a firm to first be ‘dominant’ before it could be prosecuted for “abuse of buyer power” is not entirely clear. The definition of “buying power” is remarkably silent on this issue.

The fact that the preclusion of an abuse of buyer power necessitates that a firm be dominant could be inferred by the fact that provision is inserted under Section 24 (the abuse of dominance provisions).

However, the definition of “buyer power” caters for a situation where a group of undertakings, such as when a buying group, is formed, exert buyer power, the group commits an offence. Accordingly, it may have been that the legislator was contemplating a situation in which a group of undertakings, such as a buying group collectively meets the ‘dominance’ threshold (i.e. a greater than 50% market share).

Alternatively, it could have been the intention of the legislator that the abuse of buyer power has no direct link to dominance as such and that once a firm or group of firms satisfy the definition of “buyer power”, irrespective of their market shares, the provision is triggered.

In a number of developing countries such as Turkey, South Africa and Botswana have conducted market inquiries into the grocery retail sector. Although the focus of these inquiries are relatively broad, a common focus of all the market inquiries in this sector relates to the role that the large retailers play in the market. In particular, suppliers and competition agencies are often concerned with the buying power which large retailers could exert on suppliers and that the trading terms are unfair, particularly for smaller retailers who are not always in a position to pay for shelf space, access fees or offer the discounts demanded by the retailers.

In many instances, however, the large retailers are not ‘dominant’ and a complainant would need to demonstrate that the buying power exerted by the large retailer is in fact anti-competitive.

The Kenyan Competition Authority may have thought to pre-empt this challenge and therefore included the “abuse of dominance” provisions without requiring a firm to actually be dominant for the provision to be triggered. Furthermore, the definition of “buying power” and the absence of any requirement that the conduct must in fact be anti-competitive may have been an attempt by the legislator to lower the threshold in an effort to assist a complainant in cases where a purchaser, such as a large retailer, exerts “buyer power”, but is not “dominant” in the market.

The absence of any objective qualification to assess when a firm has exerted “buyer power” in an “unfair” manner may open the litigation floodgates. A further reason why it is important that the authorities publish rules to assist with the interpretation and implementation of the “abuse of buyer” power provisions.

In terms of enforcement, the Act was previously silent on the role of the Authority upon the conclusion of an abuse of dominance investigation and the only option lay on criminal prosecution of the offending undertaking. The recent amendments to the Act now allows the Authority to impose fines of up to 10% of the annual turnover of the offending undertaking(s).

The Competition Authority of Kenya (CAK) has recently announced that a number of proposed amendments to the Competition Act are currently pending before the National Assembly for consideration and approval.

The proposed amendments are generally aimed at increasing sanctions and CAK’s authority to detect and prosecute anti-competitive behaviour as well as to ensure that parties provide the CAK with adequate and correct information to properly assess merger notifications.

Anti-competitive conduct

Importantly, the amendments seek to introduce a financial threshold for respondents who are found to have engaged in abuse of dominance practices. Currently, there is no administrative penalty for a abuse of dominance.

The amendments further include an administrative cap of 10% for engaging in cartel conduct.

Interestingly, the amendments also seek to introduce measures to protect suppliers from buying groups. Unlike the South African Competition Act which specifically precludes competitors from entering into an agreement or concerted practice which amounts to the fixing of a purchase price or trading condition, Kenya’s Competition Act does not have a similar express prohibition.

It is also not clear, at this stage, what the anti competitive effect of buying groups is having in Kenya. The CAK has, however, indicated that suppliers are often left short-changed as a result of buying groups not paying the suppliers. Whether this has or may have a foreclosure effect on suppliers is noy yet apparent.

In any event, the proposed solution is likely to be resolved through the development of guidelines rather than an amendment to the Act.

Mergers

A clear indication that the CAK is increasing its efforts to ensure that they are not merely a regulatory body which rubber stamps merger approvals is the proposed introduction of penalties for merging parties who submit incorrect information to the CAK during a merger filing.

In addition, in terms of Section 47 of the Competition Act, the CAK may revoke their decision to approve or conditionally approve a merger if the merger approval was granted based on materially incorrect or false information provided during the notification and/or the merger is implemented in contravention of any merger approval related conditions. In terms of the amendments, the CAK is proposing the introduction of criminal liability for merging parties who implement a merger despite the CAK having revoked the merger.

As to the definition of what constitutes a “merger” for purposes of the Competition Act, the proposed amendments seek to clarify that a change of control can take place by the acquisition of assets.

Market inquiries

Section 18 of the Act is also to be amended to place an obligation on parties to provide the CAK with information during market inquiries.

We have not yet seen the CAK conduct a full blown market inquiry as has been the case in South Africa. In light, however, of the CAK and the South African Competition Commission’s (SACC) advocacy initiatives (readers wlll recall that the CAK and the SACC recently concluded a Memorandum of Understanding), the CAK may soon launch a market inquiry into priority sectors such as grocery retail and agro-processing.

Merger filings in Africa remain costly and cumbersome

By AAT guest contributor Heather Irvine, Esq.

The Common Market for Eastern and Southern Africa Competition Commission (COMESA) recently announced that it has received over US$3 million in merger filing fees between December 2015 and October 2016.

About half of these fees (approximately $1.5 million) were allocated to the national competition authorities in various COMESA states. However, competition authorities in COMESA member states – including Kenya, Zambia and Zimbabwe – continue to insist that merging parties lodge separate merger filings in their jurisdiction. This can add significant transactional costs – the filing fee in Kenya alone for a merger in which the merging parties combined generate more than KES 50 billion (about US $ 493 million) in Kenya is KES 2 million (nearly US $ 20 000). Since Kenya is one of the Continent’s largest economies, significant numbers of global transactions as well as those involving South African firms investing in African businesses are caught in the net.

Merging parties are in effect paying African national competition authorities twice to review exactly the same proposed merger. And they are not receiving quicker approvals or an easier fling process in return. Low merger thresholds mean that even relatively small transactions, often with no impact on competition at all, may trigger multiple filings. There is no explanation for why COMESA member states have failed to amend their local competition laws despite signing the COMESA treaty over 2 years ago.

Filing fees are even higher if a proposed cross-border African merger transaction involves a business in Tanzania or Swaziland– the national authorities there have recently insisted that filing fees must be calculated based on the merging parties’ global turnover (even though the statutory basis for these demands are not clear).

The problem will be exacerbated even further if more regional African competition authorities, like the Economic Community of West African States (ECOWAS) and the proposed East African Competition authority, commence active merger regulation.

Although memoranda of understanding were recently signed between South Africa and some other relatively experienced competition regulators on the Continent, like Kenya and Namibia, there are generally few formal procedures in place to harmonise merger filing requirements, synchronise the timing of reviews or align the approach of the regulators to either competition law or public interest issues.

The result is high filing fees, lots of duplicated effort and documents on the part of merging parties and the regulators, and slow merger reviews.

If African governments are serious about attracting global investors, they should prioritise the harmonisation of national and regional competition law regimes.

South Africa signs cooperation agreements with Russia and Kenya

Leading government officials presented their respective countries’ accomplishments in the antitrust arena at the 10th annual Competition Law, Economics & Policy Conference in Cape Town yesterday.

The attendees ranged from the SA Minister of Economic Development, Ebrahim Patel, and the Commissioner of the Competition Commission, Tembinkosi Bonakele, to their Russian and Kenyan counterparts. Kenya Competition Authority director general Francis Kariuki emphasised the officials’ desire to remove barriers to trade. He was quoted as saying he looked forward to exchanging information on cross-border cartels, which affect both the South African and Kenyan economies: “We have regional economic communities and regional trade. There are some infractions in South Africa which are affecting Kenya and vice versa. We want to join hands to do market enquiries and do research. This will inform our governments when they come up with policies.”

On the inside-BRICS front, the SA Commission signed an MoU with Russia, adding to Russia’s “rich and diverse bilateral agreements portfolio.” The MoU is described as focussing particularly on pharmaceutical and automotive sectors, in which pending or future sectoral inquiries would see information-sharing between the Federal Antimonopoly Service (FAS) of Russia and the SACC, according to the FAS deputy chief Andrey Tsarikovskiy.

Mister Patel’s keynote address showed the glass half-full and half-empty, focussing in part on the need to “scale” the South African agency activity up to the level of the “success story” of domestic competition enforcement and its large caseload (quoting 133 new cartel cases initiated in the past year).

Never one to omit politicisation, Mr. Patel noted the perceived parallels he saw between South African history of concentrating economic power in the hands of a minority, raising indirectly the issue of public-interest concessions made in antitrust investigations, including M&A matters. Mr. Patel clearly sees the SACC’s role as including a reduction in economic inequality among the populace, rather than being a neutral competition enforcer guided solely by internationally recognised legal antitrust & economic principles. Both he and Commissioner Bonakele drew parallels between their anti-cartel enforcement and a purported reduction in the SA poverty rate of a whopping four tenths of a percent.

Parties Start Discussing Business Practices with COMESA’s CCC

As AAT reported recently — see “Growing Pains: From One-Trick Pony to Full-Fledged Enforcer?” — the COMESA Competition Commission (CCC) has begun to move from being a pure merger-control administrator to becoming a full-fledged antitrust enforcer. The CCC issued a Notice calling on firms to notify the CCC of any agreements (both historic and forward-looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ under Article 20 of the COMESA Competition Regulations. (More details on that regime are in our June article, referenced above.)

Eveready products (sample)

AAT has now learned that several companies have taken the agency up on its Exemption proposal: Andreas Stargard, a competition practitioner with Primerio Ltd. observes that the CCC’s announced “leniency ‘window’ to incentivise firms to come forward and obtain an exemption” has closed at this point in time, although he expressed doubt that the relatively short one-month period was sufficient and will likely be extended. Says Stargard: “We are seeing several parties, both global & local companies, who are beginning to take the CCC’s non-merger enforcement seriously. These undertakings are considering to obtain advance clearance of their business practices under the Commission’s Notice procedure.” One such example, he adds, is Kenya’s financially embattled Eveready East Africa: it has reportedly sought CCC approval of its agreements with international manufacturers for the importation and distribution within the COMESA common market of their diverse products, ranging from batteries to fountain pens to Clorox-brand chemicals. The Commission has invited “general public and stakeholders” for comments according to its formal statement.

In light of these developments, Stargard advises that:

“multi-national firms operating within COMESA or jointly with a COMESA-based importer or other domestic business partner should consider engaging counsel to evaluate their practices, and if they may fall within Article 16 of the Regulations, consider approaching the CCC for an authorisation letter.”